Tuesday, January 03, 2012

Newspaper shares plunged 27% in 2011

In a year when the stock market flailed mightily to end up almost exactly where it started, the shares of the publicly traded newspaper companies plummeted an average of 27% in 2011.

Of the 11 publicly held newspaper companies, the stock of only one – the broadly diversified News Corp. – gained ground in the last 12 months. The stock of the publishing-cum-broadcasting company rose 10.7% in 2011 despite the phone-hacking scandal that resulted in the closing of the News of the World and led to questions about Rupert Murdoch's stewardship of the business and the arrests of a more than a dozen former editors and reporters.

The shares of all the rest of the newspaper publishers, as detailed below (click to enlarge image), fell by double-digit rates, ranging from an 11.4% drop at Gannett to a 71.3% plunge at Lee Enterprises, the latter of which averted a potential default by refinancing its debt in the final weeks of the year.

If you take the increase in News Corp.’s stock price out of the mix, the average plunge in newspaper share value last year was 30.1%. This compares with a 5.5% increase in the Dow Jones average of 30 industrial stocks and the flat performance of the Standard & Poor’s 500-stock index, which gained a meager 0.04% after a year of dramatic market swings.

Minus the $45 billion market capitalization of News Corp., the total value of the shares of the 10 other publishers at year’s end was a bit over $10 billion, or less than three-quarters of the $13.9 billion that Gannett alone was worth at the end of 2005, the year the industry set a record for the most advertising sales in history.

Newspaper stocks are significantly underperforming the market for the following reasons:

∷ Newspaper advertising revenues have fallen continuously since peaking in 2005. As reported here, newspaper advertising probably will come in at no better than $24 billion in 2011, or half of the record $49.4 billion in 2005.

∷ Tumbling ad sales mean leaner profits. Average pre-tax profit margins for newspapers, which peaked at 28.5% in 1999, still were a sturdy 24.2% in 2005 but fell to 14.9% in the first nine months of 2011, according to the International News Marketing Association, a trade group.

∷ Eroding profits make it increasingly difficult for publishers to mange the unsustainably high levels of debt that most of them shouldered before ad sales began contracting. (Even though A.H. Belo and E. W. Scripps have no debt, their shares, which fell respectively 45.4% and 21.1% in 2011, could not escape concerns over the long-term future of the industry.)

∷ In hopes of cutting expenses fast enough to shore up their shrinking profitability, publishers are reducing staff, cutting newshole and even eliminating publication days. Consequently, newspapers are not investing in developing the products and services that would enable them to compete with the growing number of digital competitors lusting after local advertising dollars.

In other words, Wall Street is worried that publishers don’t have a plan to protect the diminishing value of their franchises at a time that appealing new technologies and media formats are siphoning readers and advertisers away from their core products.

11 Comments:

I've long wondered about the motivation of this blog, and this post provides some interesting evidence.

The facts presented are accurate, but significantly misleading. There was, indeed, a major plunge of newspaper stock values in 2011, but there also was an amazing recovering of the last 3-5 months of the year.

The writer might have reported these interesting stock jumps:

Gannett: From 8.55 on Sept. 22 to 13.37 Dec. 31.

Washington Post: From 313 on Sept. 22 to 376.8 on Dec. 31.

New York Times: From 5.67 on Oct. 3 to 7.73 on Dec. 31.

McClatchy: From 1.14 on Dec. 3 to 2.39 on Dec. 31.

Scripps: From 6.46 on Oct. 7 to 8.01 on Dec. 31.

News Corp: From 14.01 on Aug. 8 to 18.18 on Dec. 31.

Journal Comm: From 2.74 on Oct. 3 to 4.4 on Dec. 31.

Of course, that major year-end surge of newspaper stock values doesn't fit the continuing thesis of this blog. Is the motivation to report on, or contribute to, the challenges faced by newspapers?

Warren Buffett is buying a newspaper. Alden Capital, the financial group that is backing Digital First Media also owns shares of just about every public newspaper group. Gannett is up 40% in the last few months. The recession is lifting and advertising will increase especially in Classifieds and smart investors will be buying newspaper stock. Any of the newspaper groups not straddled with great debt is a wonderful investment because they are at rock bottom and will go up as the market goes up. And even with all their problems, averaging 14% pre tax profit is a number most any corporation would be proud of.

The 14.9% gross profit will continue to decrease as legal notices, the last vestige of monopolistic territory for newspapers, continue to flee the printed page. Legal notices account for about $1 billion at an astronomic gross profit margin. Municipalities continue to decrease the amount of information that they have to include in a public notice and responsible state politicos continue to bring up new bills allowing local governments to choose their outlets for publishing notices.

The 14.9% gross profit will continue to decrease as legal notices, the last vestige of monopolistic territory for newspapers, continue to flee the printed page. Legal notices account for about $1 billion at an astronomic gross profit margin. Municipalities continue to decrease the amount of information that they have to include in a public notice and responsible state politicos continue to bring up new bills allowing local governments to choose their outlets for publishing notices.

Legal advertising only grew because of the publishing of foreclosure notices which in the last two years is at least 75% of a newspapers legals. These are on a decline as the real estate mess corrects itself. As foreclosures go down, and with it legal revenue, then it means Realtors are selling homes again and newspaper can easily recoup that money with a great print/web/mobile packages for Realtors. Every newspaper knows legal revenue will go back to 2006 levels and should be preparing for the switch. If a newspaper has enough feet on the street and working to increase the quality of print, the experience online, the new great mobile and Ipad products, I can assure you, there is enough advertising out there for everyone.

Ink Drips and Janet: If a stock hits rock bottom at .01 and then rebounds to 1.00 it has increased 1000%. That may look great in the way you report it, but it really only gained .99 cents from it's bottom.

Apologies for questioning the Blog author's motives, without having a real base for that innuendo. that's the bane of so many Letters to the Editor columns and other commentary platforms, so I shouldn't fall into it myself.

What bothers me more is the glee many take in almost gloating over the financial difficulties of newspapers. While I understand the general lack of empathy for major chains focused on bottom line, I don't understand people who would let that antipathy extend to the thousands of community newspapers that remain a hugely imporant element of political, civic, economic and social glue for communities all over the country.

If they die, much dies with them. There's no other business model in sight with any hope of combining the great journalism ethics and responsibility practiced at thousands of community paper.

Newsosaur, perhaps, should focus more attention on what's at risk and less on major corporate financial challenges.

Interesting to see the News Corp. jump from greatest to greater. They are dropping plants and outsourcing to contract print sites. The news in hand is not going to be delivered by ink on paper but you will still have to read between the lines. The difference now is that you can bookmark any article down to the single word and come up with enough free news of your own to start your own "paper". You don't even need to own a press.

About Me

Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time.
Mutter began his career as a newspaper columnist and editor at the Chicago Daily News and later rose to City Editor of the Chicago Sun-Times. In 1984, he became No. 2 editor of the San Francisco Chronicle.
He left the newspaper business in 1988 to join InterMedia Partners, a start-up that became one of the largest cable-TV companies in the U.S.
Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to join the first of the three start-up companies he led as CEO.
The companies he headed were a pioneering Internet service provider and two enterprise-software companies.
Mutter now is a consultant specializing in corporate initiatives and new media ventures involving journalism and technology. He ordinarily does not write about clients or subjects that will affect their interests. In the rare event he does, this will be fully disclosed.
Mutter also is on the adjunct faculty of the Graduate School of Journalism at the University of California at Berkeley.